Markets & Finance

State corporations pile up Sh100 billion loans

planning

The Treasury report says outstanding liabilities, which are considered as part of the national debt stand at Sh1.5 trillion as at June last year. The report adds that 90 per cent of outstanding debts parastatals owe are non-performing loans. File

State corporations and local authorities owe the government nearly Sh100 billion in non-performing loans, piling to the total public debt guaranteed by taxpayers.

The latest Annual Public Debt Management Report by the Treasury shows that cash-strapped, state-owned-enterprises owe Sh95 billion in outstanding principal and interest arrears – which amounted to 6.3 per cent of the total public debt by last June.

Some of the debt goes back more than a decade, having been lent out when politically-correct chief executives and directors used state corporations to enrich themselves and bribe politicians.

“Over 90 per cent of the loan portfolio is non-performing due to poor financial performance of borrowers,” said the newly released Treasury report for July 2010 to June last year.

Outstanding loans stood at Sh46.7 billion, arrears of principal repayment at Sh14.8 billion and accrued interest at Sh33.5 billion, bringing the total to Sh95 billion.

The loans are owed to different lenders including external donors, but the Treasury was forced to assume the debt when the state corporations defaulted.

The top debtors are the local authorities under the Ministry of Local Government, which owes Sh23.3 billion, followed by ministries of Energy and Transport with Sh22.7 billion and Sh21.1 billion, respectively. Others are ministries of Agriculture, Water and Irrigation, Trade, Environment, finance and others.

Listed among the state corporations or state-linked firms that owe money to the government are Kenya Broadcasting Corporation with a balance of Sh7.44 billion, Nzoia Sugar Company with Sh6.128 billion, City Council of Nairobi with Sh3.9 billion, Tana River Development Authority with Sh2.7 billion and Industrial and Commercial Development Corporation with Sh666 million. Others are Kenya Railways with 640 million and East Africa Sugar Industries Muhoroni with Sh303 million. The report lists eleven state firms, but the others are not disclosed by name.

“Some of the debts were guaranteed but the parastatals were unable to pay, and then they were rescheduled but they still didn’t pay and the government began to pay them,” said Henry Rotich, deputy director for economic affairs at the Treasury.

The outstanding liabilities are now considered part of the national debt which, according to the report, stood at Sh1.5 trillion as at last June.

Experts now propose that the government should find a way of dealing with the debt to parastatals so that they can stop burdening the taxpayer.

“The government can waive the debt or reschedule it in the short term. In the long term, it should find a better way of handling the issue by closing down those firms that are not economically viable,” said John Mutua, a budget programme analyst at the Institute of Economic Affairs.

Mr Mutua said that though guarantees were likely to continue, the government would be required by the emerging legal framework on public financial management to ensure stronger and more valid reasons to guarantee any state corporation. “When the government has identified those state firms that are viable, then it should gradually wean them off transfers,” he said.

As the debt management department of the Treasury reviewed the status of debt in various state-linked institutions, it emerged that there also existed potentially large and unreported contingent liabilities – meaning they have potential to burden the government if the debtor defaults, even though they are not currently non-performing loans.

“Potentially large and unreported liabilities have been identified as posing additional risk to the sustainability of public debt,” said the Treasury’s debt management report.

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